Riches do not equal Prosperity

A few weeks ago, when I learned our house and truck have devalued quite a bit, a personal friend of mine who calls himself “Realist” here a guy called “JiggyPete” who commented as “Realist” (NOT my personal friend “realist” who refuses to punctuate and capitalize) left the following comment:

Ok, the economy sucks. You live in a nearly $400,000 dollar house, own three cars, and are working on a Master’s Degree. Poor you. I don’t honestly think you know what a poor economy is like. Quit whining!

That comment really irked me and I left a harsher reply than I probably should have. However, the comment reminded me of a George Lopez quote that I’ve been saving for the perfect moment…and this one is it, oddly enough:

If you don’t know, George Lopez is an incredibly funny comic who takes Hispanic stereotypes head on in his stand-up acts, TV show and movies. Unfortunately, the TV show was canceled in 2007, but is currently in reruns. So, in one of the episodes, George Lopez said the following to his wife during an argument about money (which they often argued about):

We have a house and 3 cars. Would we be in this much debt if I wasn’t successful?

It fit our situation perfectly. We also had 3 cars and a house, but we also had a huge amount of debt. We overspent on home and car alike, and we’ve finally gotten the latter down to a reasonable loan amount, while selling off our third car recently.

So if you couldn’t guess from the article title, the intent here is that just because we have material possessions, doesn’t mean we are prosperous or successful. One of the 3 cars wasn’t ours, nor is the house. They both belong to the bank.

Putting things into perspective

I do recognize that Realist’s point was to be happy with what we have because it’s so much more than 99% of the world. But I didn’t write the article complaining about the falling values because we want to upsize. Rather, I wrote it to point out that we are not as liquid as we would like. That means if I lost my job, or if we needed to move to another job location, that we can’t sell our house very easily, and we probably couldn’t sell the truck without taking a slight loss.

Also, just because we own a $400,000 home doesn’t mean squat when you see that the main difference between his home in central PA and my own near D.C. is our pool and a different layout. They’re both Cape Cod styles from the 40-50s. While we paid $400k for our home, his cost him around $100,000. So our home is almost the same, but because of its location, cost 4x as much.

I won’t guess too much at salary, but I know we don’t make 4x in combined income compared to him and his future wife, but I’m pretty sure it’s at least double. So Realist definitely has the better deal in this situation, but one thing to remind ourselves of is why we’re in the D.C. area. Realist has very few job opportunities that still pay well in his location (my hometown), while I can easily find a comparable replacement (or better) in under a month if needed. And THAT’S why we’re sacrificing our family connections: mobility and job security. We have to keep reminding ourselves of that because otherwise this area is killing us.

Even more perspective

Ok, so we have 3 cars and a $400,000 house. We’ve illustrated that most of it isn’t even ours. But to put it in even more of a stark contrast, let’s look at comparable homes of some of our neighbors.

While none of our neighbors has a pool, I can still compare our home to a neighbor’s who has a similar lot size and square footage. We bought our home about 4 years ago; they’ve been in theirs for 30 years. And while we paid hundreds of thousands of dollars for our home, they paid $50,000 for theirs (30 years ago). So I can think “We’re doing so well because we have such an expensive home”, but in reality, the guy across the street is living in the same house, but paid an eighth of the price. It’s not a $400k house until they sell it. Until then, it’s just a $50,000 house.

So we have 3 examples of basically the same house, but for 3 widely differing prices: $50k, $100k, $400k. How can I feel prosperous when I’ve paid the most for the same house compared to my friend and my neighbor? I don’t. I just feel blessed that I can still make the mortgage payments.

Conclusion

As you can see, our “$400,000 house” means nothing because it’s all relative to where we live and the average salary in our area. We probably have the same after-tax disposable income as Realist, even though we make more in salary. Someone in Vietnam could say the same thing to him about his $100,000 house and 2 cars (counting his future wife’s). Someone in Zimbabwe could say something about that Vietnamese guy’s “expensive” house. It’s all relative.

What matters is if you’re enjoying yourself. The Zimbabwean could love his life, while I’m very discontent with my own right now. Even the Realist enjoys his life more than I enjoy mine because he’s close to all his friends and family, while we’re at least 2.5 hours away from any of them. Possessions mean nothing if you can’t enjoy them.

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About the author

Clever Dude

11 Comments

People don’t think much of me because I don’t own a flashy car or nice home, but what they don’t see is that 1: I have zero debt, and 2: I save 30% of my income every month.

I know lots of people in your state who have “net worth” of millions yet who are house poor, ergo they cannot afford to do anything because of the lavish “keep up with the Joneses” mentality that permeates society. Furthermore, I know people who own multiple homes having been caught up in the real estate debacle. These folks have to work extra hours or multiple jobs to keep on top of their debt, and as a result they have no time to enjoy the things they own.

By contrast, I do whatever I want whenever I want. Since I have no debt and use only a fraction of my earnings (even after alimony) I can buy whatever I want whenever I please. I really liked your closing comment that “Possessions mean nothing if you can’t enjoy them.” If you’re always at work or always worrying about money, you’re not living life.

Although I envy what you have, as you said “just because we have material possessions, doesn’t mean we are prosperous or successful”. What you own is only worth money if people will buy it from you. Otherwise it’s the same as any other possession like a pen or some socks, and only worth its weight in terms of the utility it affords you in your life.

Thank you for being the first money blogger I’ve seen to openly admit and confront this reality.

Your post is very true. It’s like the American spending a holiday down in rural Mexico. He watches as a fishermen draws up to anchor, his little dinghy ladled with fish. He ask the Mexican how long it took him to catch the fish to which he finds it was only half an hour or so. He asks the Mexican what he does with all the rest of his time. “I get up when I want, I spend a little time with my wife and kids before setting off in the boat, on returning I spend time with the family again. in the evening I wander down to the local taberna and sip wine and play guitar with my amigos”. The American pumps up his chest and says, “You are sitting on a goldmine, if you could fish for a little longer you could eventually raise enough to pay a couple of crews to go out and fish for you. you could eventually control supply, distribution and sales. You’d have to relocate to Mexico City and eventually New York. After building it you could float on the Stock Exchange and retire a millionnaire”. “What would I do then?” asked the Mexican. The American replied: “Then you could get up when you want, spend time with your wife and kids, wander down to the local taberna, sip wine, play guitar with your amigos”

“As you can see, our “$400,000 house” means nothing because it’s all relative to where we live and the average salary in our area. We probably have the same after-tax disposable income as Realist, even though we make more in salary.”

I have to disagree. I hear this argument a lot on PF blogs when people live in a high cost of living area. It completely ignores the long-term financial impact of your living situation.

In other words, say you and Realist both retire, sell your homes, and move to Florida to warm your bones. (Not an uncommon path in life.) Guess what… now your cost of living is identical, but you STILL have 4 times more proceeds from your house than he does. Tada!

The second issue you’re ignoring is quality of life. The reason your house is 4 times more expensive than Realist’s, even though (for the sake of argument) they’re identical, is that you live in a place that society has deemed more desirable. Example: You live in DC, or near to it, apparently. I’ve been to DC a few times. I know it has really nice restaurants, cool things to do, museums, etc. That’s all stuff that is available to you that has some difficult to calculate value.

I live in Raleigh, NC. We have a nice(ish) museum. A few good restaurants. Not as much to do. A less educated population. If your salary is exactly 1.47 times greater than mine (hypothetical COLA), and we have the exact same after-tax disposable income, your life is still better than mine.

So, two factors. I’m not complaining about the facts (they don’t necessarily apply to me as stated) but I do wish people would not be blind to pretty obvious truths.

@Jon, you are missing something. If they make half our salary, but their house costs a quarter as much, they can buy and pay off two homes in the same amount of time as it would take us to pay off one. Yes, we’ll be up $200,000 on them, but it’s not the $400k you originally thought.

And don’t downplay what you have in Raleigh. My best friend, and co-author on this site, Shawn, lives in Raleigh and loves it there. Sure, you don’t have Ethiopian restaurants and people have outhouses just outside of the city, but the traffic isn’t nearly as bad and the job prospects (at least in my industry, and my wife’s) are constantly growing.

But you did catch that I will have a leg up on my friend when we retire, but it’s just not as good of one as you thought.

“If they make half our salary, but their house costs a quarter as much, they can buy and pay off two homes in the same amount of time as it would take us to pay off one.”

Well, in the part I quoted you assumed that your disposable incomes are equal. It stands to reason that if he has enough disposable income to buy another house, then you could take that same amount and invest it.

Also, keep in mind that your home is not your only expense, and most expenses don’t share that 4:1 ratio. New Yorkers don’t pay $60k for a Toyota Corolla, for instance. Bostonians don’t pay $200/month for basic cable. In our increasingly mobile world, most of your costs are going to be the same or just a bit more. Computers, iPods, televisions, tickets to Disney World… it’s all the same no matter where you live.

ps. I like Raleigh, heck I live there, but let’s be honest — a neutral third party would be very unlikely to argue that Raleigh is as nice as DC, New York, Paris, or Rome. 🙂

I think wealth is not just about the numbers, it’s more about what the individual does with them that counts. I believe that true riches are built from learning to achieve quality of life you want, while living happily within your means. That’s going to mean something different for each person 🙂
Sincerely,
Amanda